Guotai Haitong: Amazon (AMZN.US) Q3 capital expenditure exceeds expectations, increasing cash flow pressure

According to Jinzi Caijing APP, Guotai Haitong has released a research report stating that Amazon (AMZN.US) maintained high growth in its AWS business in Q3 2026, with strong demand for AI computing power. However, growth in retail and advertising businesses has slowed, capital expenditure continues to expand, and free cash flow is under pressure. Looking ahead, AI demand is expected to continue to support cloud business growth, but it is still necessary to pay attention to the returns on capital expenditure and changes in supply and demand in the upstream computing power industry chain.

The main viewpoints of Guotai Haitong are as follows:

Amazon's computing power demand remains strong, AI investment is proactive, and cash flow pressure increases. In Q3 2026, Amazon's overall performance was slightly below expectations. Cloud business showed good growth, with ample and highly visible order reserves. The company made positive statements regarding AI investment, maintaining its guidance for 2026 and projecting high growth in 2027. However, capital expenditure fluctuated significantly from quarter to quarter in 2026, and attention should be paid to the risk of front-loaded supply chain spending in the third and fourth quarters. Looking ahead to 2027, cash flow pressure will further increase, and the company is expected to further expand its financing scale. Close attention should be paid to the macro interest rate environment and the returns on capital expenditure.

Amazon’s Q3 2026 revenue growth slows, net profit is mediocre. In Q3 2026, the company achieved revenue of $201.9 billion, up 12% year-on-year, and diluted EPS was $1.89; both were slightly below market expectations. Among them, online store revenue increased by about 2% year-on-year, and advertising revenue was $19.6 billion, up 11% year-on-year. Due to the adjustment of Prime Day's timing, this year's event was moved from the third quarter to the second quarter compared to the previous year. If this factor is excluded, the year-on-year revenue growth rate for Q3 would increase by about 4 percentage points. Operating profit for the quarter reached $28.1 billion, with an operating margin of 13.9%. Net profit’s year-on-year decline was mainly affected by a one-time gain from Anthropic investment in the same period last year, resulting in a disparity between main operating performance and net profit growth. The company provided guidance for Q4 revenue and operating profit, expecting revenue of $240 to $247 billion and operating profit of $28.5 to $33.5 billion, with midpoints of both ranges slightly below market consensus.

AWS cloud business continues to grow, with high medium to long-term visibility for demand. In Q3 2026, AWS achieved revenue of $46.0 billion, a year-on-year increase of 39.3%. AWS Backlog reached $578 billion, up more than 100% year-on-year, reflecting strong demand for cloud services and robust order reserves, with sustained improvement in medium- and long-term visibility. Management expects AWS revenue growth to exceed 40% in both 2027 and 2028 and stated that additional computing power can basically be absorbed by customers in a timely manner.

Capital expenditure continues to expand, free cash flow under pressure. Cash capital expenditure in Q3 2026 was about $77.3 billion, exceeding Bloomberg’s consensus estimate of $58.8 billion. The company maintained its 2026 capex guidance at roughly $220 billion, with a spending pattern likely to be higher in the third quarter and lower in the fourth quarter. The company also expects capex to increase significantly in 2027. Free cash flow in Q3 2026 was -$33.5 billion. With core business growth slightly below expectations, cash flow pressure continued to increase.

Risk warning: AI demand and commercialization progress falling short of expectations, intensified industry competition, supply chain risk, construction and delivery progress of data centers not meeting expectations, financing risk.